Well, I found the CSS for the dropcaps:
span.dropcaps
{
float: left;
font-size: 80px;
line-height: 70px;
padding-top: 1px;
margin-top: -.09em;
margin-right: .09em;
}
The font-size attribute that I bolded above is what the Kobo Touch has an issue with, particularly the fixed font size. If I change that line to a percentage, such as
font-size: 400%, the dropcaps display perfectly. But changing it back to any fixed size causes the KT to ignore it.
So here's another rendering error to add to the list. Hopefully they address this with a future update.